I kind of agree with Counselor and Bugs on this. I believe there are two classifications of real estate investment, smart money and dumb money. Smart money real estate investment is thus subdivided into a few subclasses. These include people with wealth who are looking for appreciating vehicles who are not much concerned with cash flow and/or the hassles involved with dealing with alot of renters. So this may be a wealthy individual or family who purchases mid level or higher SFH during down cycles in real estate, then holds them for a few years or even longer for long term gains. Another subclass would include people who buy multiple rentals, who utilize leverage and who make money with cash flowing properties. Inside this class are more nimble types who study regional markets and move in and out of them well ahead of secular market crashes. These are the types who sold out of higher density rental properties in 03/04. Then the dumb money. The dumb money are people who got lucky. They flipped during the runup and enjoyed the benefits but like an addict, they purchase more property in 06 and are still to this day trying to flip. Yes some of them are still out there.
I think that there is quite a substantial amount of accumulated wealth on the sidelines waiting to buy. The classifications of what types of properties these individuals buy will indeed vary as will the timing. It is really hard for me to try to envision how it will play out because everyone has that threshold for when they will pull the trigger. I do not think that we will hit the bottom and bounce hard up. My thought process is that I don’t see all the lions jumping in on the meat at once. I think there will be a more measured entry that will not occur when we hit bottom, it will occur before the bottom, maybe well before bottom and it will serve to reduce the slope of the decline. Then we will level off and start to ramp up. I see that happening over a period of about 2 years. I think it alot depends on the lending environment. If the market is dominated by the wealthy investors then I do not envision a steep slope back up. To me bubbles are not caused by the rich, they are caused when the masses that cannot afford the assets are allowed to purchase the assets. If the lending environment will not allow just anyone to enter, the appreciation rate will stay in measured rates.
